B-44250, SEPTEMBER 21, 1944, 24 COMP. GEN. 244

B-44250: Sep 21, 1944

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IS AN OVERHEAD EXPENSE REIMBURSEMENT OF WHICH IS PROHIBITED BY THE PROVISION OF THE CONTRACT THAT NO OVERHEAD EXPENSE OF ANY KIND. 1944: I HAVE YOUR LETTER OF AUGUST 30. AS FOLLOWS: THERE IS FORWARDED HEREWITH FOR YOUR CONSIDERATION AND DECISION A FILE PERTAINING TO AN EXPENDITURE MADE BY THE SHERWIN-WILLIAMS DEFENSE CORPORATION. WHICH PRECIPITATED THE QUESTION IS AS FOLLOWS: "THE ABOVE INVOICE COVERS THE COST OF 40 DINNERS FOR REPRESENTATIVES OF THE CONTRACTOR AND VARIOUS BARGAINING UNITS. WHICH REPLY WAS EVIDENTLY CONSIDERED UNSATISFACTORY IN THAT A FORMAL NOTICE OF EXCEPTION FORM 1100 WAS ISSUED UNDER DATE OF MAY 27. WILL BE WITHHELD OR A CHARGE WILL BE RAISED IN YOUR NEXT STATEMENT OF SETTLEMENT FOR THE REASON STATED BELOW UNLESS A SATISFACTORY EXPLANATION IS PROMPTLY MADE OR THE AMOUNT DEPOSITED: " P.O.

B-44250, SEPTEMBER 21, 1944, 24 COMP. GEN. 244

CONTRACTS - COST-PLUS - COST OF DINNERS INCIDENT TO MEETING RELATING TO LABOR AGREEMENT THE COST OF DINNERS FURNISHED EMPLOYEES OF A COST-PLUS-A-FIXED-FEE CONTRACTOR AND REPRESENTATIVES OF COLLECTIVE BARGAINING UNITS OF A LABOR UNION IN CONNECTION WITH A MEETING TO DISCUSS CERTAIN LABOR AGREEMENTS, THE NATURE AND PURPOSE OF WHICH RELATED PRIMARILY TO THE MANAGEMENT, SUPERVISION OR CONDUCT OF THE CONTRACT, IS AN OVERHEAD EXPENSE REIMBURSEMENT OF WHICH IS PROHIBITED BY THE PROVISION OF THE CONTRACT THAT NO OVERHEAD EXPENSE OF ANY KIND, EXCEPT AS SPECIFICALLY PROVIDED FOR, SHALL BE INCLUDED IN THE COST OF THE WORK.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF WAR, SEPTEMBER 21, 1944:

I HAVE YOUR LETTER OF AUGUST 30, 1944, AS FOLLOWS:

THERE IS FORWARDED HEREWITH FOR YOUR CONSIDERATION AND DECISION A FILE PERTAINING TO AN EXPENDITURE MADE BY THE SHERWIN-WILLIAMS DEFENSE CORPORATION, COST-PLUS-A-FIXED-FEE CONTRACTOR UNDER CONTRACT NO. W-ORD 522, FOR DINNERS FURNISHED EMPLOYEES OF THE CONTRACTOR AND REPRESENTATIVES OF COLLECTIVE BARGAINING UNITS OF A UNION.

THE INFORMAL NOTICE OF EXCEPTION DATED APRIL 1, 1944, WHICH PRECIPITATED THE QUESTION IS AS FOLLOWS:

"THE ABOVE INVOICE COVERS THE COST OF 40 DINNERS FOR REPRESENTATIVES OF THE CONTRACTOR AND VARIOUS BARGAINING UNITS.

"REIMBURSABILITY OF SUCH COSTS HAS NOT BEEN ESTABLISHED UNDER THE TERMS OF THE CONTRACT.'

THE CONTRACTOR REPLIED TO THE ABOVE INFORMAL NOTICE OF EXCEPTION BY LETTER DATED APRIL 24, 1944, WHICH REPLY WAS EVIDENTLY CONSIDERED UNSATISFACTORY IN THAT A FORMAL NOTICE OF EXCEPTION FORM 1100 WAS ISSUED UNDER DATE OF MAY 27, 1944, AS FOLLOWS:

"CREDIT FOR $52.00 PAID TO: SHERWIN-WILLIAMS DEFENSE CORP., WILL BE WITHHELD OR A CHARGE WILL BE RAISED IN YOUR NEXT STATEMENT OF SETTLEMENT FOR THE REASON STATED BELOW UNLESS A SATISFACTORY EXPLANATION IS PROMPTLY MADE OR THE AMOUNT DEPOSITED:

" P.O. NO. 8670; INVOICE, 16271; DATE, 2-4-44; VENDOR, MARION CATERING CO.

"COSTS INCURRED FOR MEALS FURNISHED TO EMPLOYEES OF THE CONTRACTOR AND TO REPRESENTATIVES OF COLLECTIVE BARGAINING UNITS ARE NOT REIMBURSABLE.

"CONTRACTOR'S REPLY OF APRIL 24, 1944, HAS BEEN NOTED.'

THE PERTINENT PROVISIONS OF THE CONTRACT ARE AS FOLLOWS:

TITLE IV--- ART. IV-A-7---

"7. IN CARRYING OUT THE WORK UNDER THIS TITLE IV THE CONTRACTOR IS AUTHORIZED AND SHALL DO ALL THINGS NECESSARY OR CONVENIENT IN THE OPERATING AND CLOSING DOWN OF THE PLANT, OR ANY PART THEREOF INCLUDING (BUT NOT LIMITED TO) THE EMPLOYMENT OF ALL PERSONS ENGAGED IN THE WORK HEREUNDER (WHO SHALL BE SUBJECT TO THE CONTROL AND CONSTITUTE EMPLOYEES OF THE CONTRACTOR), THE PROVIDING OF ALL MATERIALS AND SUPPLIES EXCEPT SUCH AS THE GOVERNMENT IS TO FURNISH OR SUPPLY AS ELSEWHERE SPECIFICALLY PROVIDED HEREIN, THE STORAGE OF MATERIALS AND SUPPLIES AND OF THE FINISHED PRODUCTS TO THE EXTENT OF THE STORAGE FACILITIES AT SAID PLANT, THE PREPARATION OF THE PRODUCT FOR SHIPMENT AND THE LOADING OF SAME ON CARS OR OTHER CARRIERS IN ACCORDANCE WITH THE GOVERNMENT'S SHIPPING INSTRUCTIONS.'

TITLE V--- ART. V-A-1---

"1. THE CONTRACTOR SHALL BE REIMBURSED IN THE MANNER HEREINAFTER DESCRIBED FOR SUCH OF ITS ACTUAL EXPENDITURES IN THE PERFORMANCE OF THE WORK UNDER THIS CONTRACT, AS MAY BE APPROVED OR RATIFIED BY THE CONTRACTING OFFICER, AND AS ARE INCLUDED IN BUT NOT LIMITED TO THE FOLLOWING ITEMS: * * * * * * * *

"R. SUCH OTHER ITEMS AS SHOULD, IN THE OPINION OF THE CONTRACTING OFFICER, BE INCLUDED IN THE COST OF THE WORK. WHEN SUCH AN ITEM IS ALLOWED BY THE CONTRACTING OFFICER, IT SHALL BE SPECIFICALLY CERTIFIED AS BEING ALLOWED UNDER THIS PARAGRAPH.'

TITLE VII--- ART. VII-A-/A/---

"/A) ALL WORK UNDER THIS CONTRACT IS TO BE PERFORMED AT THE EXPENSE OF THE GOVERNMENT, AND THE GOVERNMENT SHALL INDEMNIFY AND HOLD THE CONTRACTOR HARMLESS AGAINST ANY LOSS, EXPENSE (INCLUDING EXPENSE OF LITIGATION) OR DAMAGE (INCLUDING PERSONAL INJURIES AND DEATHS OF PERSONS AND DAMAGE TO PROPERTY) OF ANY KIND WHATSOEVER ARISING OUT OF OR CONNECTED WITH THE PERFORMANCE OF THE WORK, UNLESS SUCH LOSS, EXPENSE OR DAMAGE SHOULD BE SHOWN BE THE GOVERNMENT TO HAVE BEEN CAUSED DIRECTLY BY BAD FAITH OR WILLFUL MISCONDUCT ON THE PART OF SOME OFFICER OR OFFICERS OF THE CONTRACTOR ACTING WITHIN THE SCOPE OF HIS OR THEIR AUTHORITY AND EMPLOYMENT.'

PARAGRAPH IV-A-7 QUOTED ABOVE STATES THAT "IN CARRYING OUT THE WORK UNDER THIS TITLE IV THE CONTRACTOR IS AUTHORIZED AND SHALL DO ALL THINGS NECESSARY OR CONVENIENT IN THE OPERATING * * * OF THE PLANT * * *.' (ITALICS SUPPLIED.) AND AS STATED IN THE CONTRACTOR'S LETTER DATED APRIL 24, 1944, IT WAS CONSIDERED NECESSARY BY THE CONTRACTOR TO HOLD A MEETING IN THE FORM OF A DINNER (WHICH IS ORDINARY COMMERCIAL PRACTICE) FOR THE PURPOSE OF DISCUSSING LABOR MATTERS WITH THE UNION OFFICIALS. CERTAINLY THIS EXPENDITURE WAS IN CONNECTION WITH THE WORK AND IT WAS SO AUTHORIZED AS PROVIDED IN PARAGRAPH 7 OF ARTICLE IV-A AND APPROVED AS A NECESSARY EXPENDITURE BY THE CONTRACTING OFFICER'S REPRESENTATIVE.

AS IS STATED ABOVE THE MEETING WAS CALLED FOR THE PURPOSE OF DISCUSSING THE DIRECTIVE ORDERS RECEIVED FROM THE NATIONAL WAR LABOR BOARD WITH RESPECT TO LABOR AGREEMENTS BETWEEN THE CONTRACTOR AND TEN BARGAINING LABOR UNITS.

IT WOULD SEEM, IN ACCORDANCE WITH THE CLEAR AND UNAMBIGUOUS TERMS OF THE CONTRACT, THAT THE QUESTION OF THE MEANS TO BE USED TO ACCOMPLISH THE DESIRED END WAS ONE TO BE DETERMINED BY THE CONTRACTOR FOR THE CONTRACT PROVIDES THAT "THE CONTRACTOR SHALL DO ALL THINGS NECESSARY OR CONVENIENT * * *.' IF, AS IN THIS CASE, THE CONTRACTOR DETERMINED THAT THE BEST, MOST ECONOMICAL AND EFFICIENT WAY TO SETTLE PROBLEMS WITH THE UNION OFFICIALS WAS BY HAVING AN INEXPENSIVE INFORMAL DINNER AT THE LOCAL PROJECT CAFETERIA FOR THE PURPOSE OF GETTING THE GROUP TOGETHER, AND SUCH EXPENDITURE WAS APPROVED BY THE CONTRACTING OFFICER'S REPRESENTATIVE, THEN SUCH DETERMINATION AND APPROVAL SHOULD BE CONCLUSIVE, IF IN ACCORDANCE WITH ARTICLE VII-A-/A) "ALL WORK UNDER THIS CONTRACT IS TO BE PERFORMED AT THE EXPENSE OF THE GOVERNMENT.' OTHERWISE, THE CONTRACT PROVISIONS QUOTED ABOVE ARE MISLEADING AND BECOME MERE SURPLUSAGE TO BE RECOGNIZED ONLY AS ONE OF THE CONTRACTING PARTIES MAY SEE FIT.

THE CONTRACTOR'S LETTER OF APRIL 24, 1944, REFERRED TO BY YOU, IS, IN PERTINENT PART, AS OLLOWS:

THE INVOICE IN QUESTION REPRESENTS THE EXPENSE OF 40 DINNERS AT $1.30 INCURRED IN CONNECTION WITH THE JOINT MEETING OF REPRESENTATIVES OF THE PRIME CONTRACTOR AND REPRESENTATIVES FROM THE NINE UNIONS REPRESENTED BY THE AMERICAN FEDERATION OF LABOR AND THE BROTHERHOOD OF RAILROAD TRAINMEN, INDEPENDENT, HELD ON THE EVENING OF JANUARY 17, 1944 IN THE LOCAL PROJECT CAFETERIA. THIS MEETING WAS CALLED FOR THE PURPOSE OF DISCUSSING THE DIRECTIVE ORDERS RECEIVED FROM THE NATIONAL WAR LABOR BOARD IN CONNECTION WITH THE LABOR AGREEMENTS BETWEEN THE CONTRACTOR AND THESE TEN BARGAINING UNITS. THESE DIRECTIVE ORDERS HAD BEEN PENDING FOR A CONSIDERABLE LENGTH OF TIME AND IT WAS FELT BY THE CONTRACTOR THAT THEY COULD MOST FAIRLY AND EXPEDITIOUSLY BE DISPOSED OF IN A GROUP MEETING OF THIS TYPE WHICH WOULD DIRECTLY EXPEDITE AND BENEFIT THE WORK UNDER CONTRACT NO. W-ORD-522 DA-W- ORD-18.

BOTH THE SUBJECT MEETING AND EXPENSE RECEIVED THE PRIOR APPROVAL OF THE CONTRACTING OFFICER'S REPRESENTATIVE WHICH APPROVAL WAS BASED ON HIS AND OUR DETERMINATION THAT SUCH WAS NECESSARY TO THE PROSECUTION OF THE WORK UNDER THE PRIME CONTRACT. * * *

UNDER THE TERMS OF THE CONTRACT INVOLVED IT WAS AGREED THAT THE CONTRACTOR WOULD "DESIGN, CONSTRUCT AND EQUIP A NEW ORDNANCE FACILITY BY FURNISHING MANAGEMENT SERVICES FOR SUCH DESIGNING, CONSTRUCTING AND EQUIPPING, BY PROCURING THE PRODUCTION EQUIPMENT TO BE INSTALLED THEREIN, AND BY SUBCONTRACTING WITH THIRD PARTIES FOR NECESSARY ARCHITECT-ENGINEER SERVICES AND FOR CONSTRUCTING THE NEW ORDNANCE FACILITY AND INSTALLING THE PRODUCTION EQUIPMENT THEREIN; AND * * * TRAIN KEY PERSONNEL AND OPERATE" THE SAME, FOR AND IN CONSIDERATION OF PAYMENT OF THE FIXED FEES STIPULATED IN THE CONTRACT FOR THE VARIOUS SERVICES, AND OF REIMBURSEMENT FOR EXPENDITURES IN CONNECTION WITH PERFORMANCE THEREUNDER WHEN APPROVED OR RATIFIED BY THE CONTRACTING OFFICER AND AS "INCLUDED IN BUT NOT LIMITED TO" ITEMS LISTED UNDER ARTICLE V-A OF THE CONTRACT.

EXPENDITURES OF THE KIND HERE INVOLVED ARE NOT SPECIFICALLY MENTIONED AMONG THE REIMBURSABLE ITEMS LISTED IN ARTICLE V-A OF THE CONTRACT AND IT IS PROVIDED IN PARAGRAPH 5 THEREOF THAT "NO OVERHEAD EXPENSES OF ANY KIND, EXCEPT AS SPECIFICALLY AUTHORIZED IN SECTION 1 OF THIS ARTICLE, SHALL BE INCLUDED IN THE COST OF THE WORK UNDER THIS CONTRACT.' WHILE IN ARTICLE V -A, PARAGRAPH 1, SUBPARAGRAPH R, REIMBURSEMENT IS AUTHORIZED FOR "SUCH OTHER ITEMS AS SHOULD, IN THE OPINION OF THE CONTRACTING OFFICER, BE INCLUDED IN THE COST OF THE WORK," IT IS FURTHER PROVIDED THEREIN THAT THE CONTRACTING OFFICER SHALL SPECIFICALLY CERTIFY SUCH ITEMS "AS BEING ALLOWED UNDER THIS PARAGRAPH.' THE RECORD SHOWS THAT THE ITEM OF EXPENSE HERE IN QUESTION WAS APPROVED BY THE CONTRACTING OFFICER'S REPRESENTATIVE BUT FAILS TO INDICATE THAT IT WAS CERTIFIED UNDER THE SAID SUBPARAGRAPH R. FURTHERMORE, WHILE THE AUTHORITY CONFERRED ON THE CONTRACTING OFFICER IN SAID PARAGRAPH APPEARS TO BE BROAD AND LIBERAL, IT IS NOT AN UNLIMITED OR UNRESTRICTED AUTHORITY--- ONE OF THE DEFINITE RESTRICTIONS THEREON BEING THAT THE CONTRACTING OFFICER IS NOT AUTHORIZED UNDER SAID PARAGRAPH TO INCLUDE IN THE COST OF THE WORK AN ITEM FOR WHICH PAYMENT IS PROHIBITED, EITHER EXPRESSLY OR IMPLIEDLY, BY OTHER PROVISIONS OF THE CONTRACT. SEE 21 COMP. GEN. 447, 449. THE PROVISION IN ARTICLE V A, PARAGRAPH 5, SUPRA, DEFINITELY WOULD APPEAR TO PROHIBIT CERTIFICATION OF AN ITEM OF OVERHEAD EXPENSE UNDER SUBPARAGRAPH R, SUPRA. MOREOVER, IT CANNOT BE SAID THAT THE TERM "OVERHEAD EXPENSES" AS USED IN SAID PARAGRAPH HAD REFERENCE TO "GENERAL OVERHEAD EXPENSES" OF THE CONTRACTOR AS DISTINGUISHED FROM "OVERHEAD EXPENSES" INCURRED IN CONNECTION WITH THE PERFORMANCE OF THIS PARTICULAR CONTRACT, SINCE PARAGRAPH P OF SAID ARTICLE V-A PROVIDED FOR THE PAYMENT OF CERTAIN SUMS MONTHLY "AS COMPLETE COMPENSATION, INCLUDING ALL GENERAL OVERHEAD, FOR ALL SERVICES PERFORMED BY THE CONTRACTOR AT ITS CLEVELAND, OHIO, OFFICES IN CONNECTION WITH THE WORK * * * EXCEPT FOR THE WAGES, SALARIES AND TRANSPORTATION AND TRAVELING EXPENSES OF EMPLOYEES OF THE CONTRACTOR WHO DEVOTE FULL TIME TO THE WORK * * *.' SEE B-31550, JUNE 1, 1944, TO YOU.

IT APPEARS THAT THE MEETING IN QUESTION WAS CALLED BY THE CONTRACTOR FOR THE PURPOSE OF ENABLING ITS REPRESENTATIVES TO DISCUSS WITH REPRESENTATIVES FROM TEN LABOR UNIONS CERTAIN DIRECTIVE ORDERS WHICH HAD BEEN ISSUED BY THE NATIONAL WAR LABOR BOARD IN CONNECTION WITH LABOR AGREEMENTS BETWEEN THE CONTRACTOR AND THE LABOR UNIONS. OBVIOUSLY, THE NATURE AND PURPOSE OF THE MEETING PERTAINED TO MATTERS RELATING PRIMARILY TO THE MANAGEMENT, SUPERVISION OR CONDUCT OF THE CONTRACT AND, THEREFORE, UNDER WELL ESTABLISHED PRINCIPLES, SUCH EXPENSES AS WERE INCIDENT TO HOLDING THE MEETING CONSTITUTED OVERHEAD EXPENSES. LYTLE, CAMPBELL AND CO., INC., V. SOMERS, FITLER AND TODD CO., 276 PA. 409, 120 ATL. 409, 410. HENCE, IT IS SEEN THAT THE PLAIN AND UNAMBIGUOUS TERMS OF THE CONTRACT PROHIBIT THE REIMBURSEMENT OF THE CONTRACTOR FOR THE ITEM OF EXPENSE HERE INVOLVED.

AS INDICATED BY THE TITLE OF ARTICLE VII-A, VIZ," RESPONSIBILITY OF CONTRACTOR--- NTINGENCIES," SUBPARAGRAPH (A) THEREOF, QUOTED IN YOUR LETTER, RELATES TO THE INDEMNITY OF THE CONTRACTOR BY THE GOVERNMENT FOR EXPENSES INCURRED IN SETTLING CLAIMS OF THIRD PARTIES FOR LOSS OR DAMAGE ARISING OUT OF OR IN CONNECTION WITH THE PERFORMANCE OF THE CONTRACT WORK, AND THE OPENING STATEMENT THEREOF THAT " ALL WORK UNDER THIS CONTRACT IS TO BE PERFORMED AT THE EXPENSE OF THE GOVERNMENT" MUST BE CONSIDERED IN THE LIGHT OF WHAT FOLLOWS. MOREOVER, IT IS AXIOMATIC THAT THE INTENT AND MEANING OF A CONTRACT ARE NOT TO BE DETERMINED BY THE CONSIDERATION OF AN ISOLATED SECTION OR PROVISION THEREOF BY ITSELF, BUT THAT THE CONTRACT IS TO BE CONSIDERED IN ITS ENTIRETY AND EACH PROVISION IS TO BE CONSTRUED IN ITS RELATIONSHIP TO OTHER PROVISIONS AND IN THE LIGHT OF THE GENERAL PURPOSE INTENDED TO BE ACCOMPLISHED BY THE CONTRACTING PARTIES. 13 C.J. 525; 17 C.J.S. 707, AND CASES CITED THEREIN. MANIFESTLY, THE TERMS OF THE INSTANT CONTRACT NEGATIVE THE ASSUMPTION THAT THE PARTIES INTENDED THAT THE CONTRACTOR WAS TO BE REIMBURSED FOR AN EXPENDITURE OF THE TYPE HERE INVOLVED.

THEREFORE, WHILE IT MAY BE THAT THE EXPENSE INVOLVED WAS REASONABLY NECESSARY TO THE PERFORMANCE OF THE CONTRACT WORK, IT MUST BE REGARDED AS AN EXPENSE PROPERLY TO BE BORNE BY THE CONTRACTOR OUT OF THE FIXED FEES PROVIDED FOR IN THE CONTRACT.

ACCORDINGLY, I HAVE TO ADVISE THAT REIMBURSEMENT OF THE CONTRACTOR FOR THE ITEM OF EXPENSE IN QUESTION IS NOT AUTHORIZED.